The winds of change are a blowing. As of the writing of this article, the Republican Party will have a majority in both the House and Senate as the country moves into the New Year. No matter which side of the political spectrum you reside, the overall approval rating of Congress was an abysmal 14% prior to the November elections which tells us they can’t do much worse in the eyes of their constituents.
Will the new Congress once again try to repeal Obamacare? Will we finally see some meaningful legislation on immigration, tax reform, and fair trade deals with Europe and Asia? Only time will tell, but doing nothing surely is not a recipe for success.
As for global events, the Middle East unrest continues. The situation in Syria is worsening by the day which has led to the birth of a more potent faction of Al Qaeda known as ISIS. They have already taken over large swaths of land in both Syria and Northern Iraq in their quest to create a separate Islamic state. The United States has maintained a hands off policy allowing the Iraqi government to run their country without U.S. interference. Unfortunately, the situation has deteriorated forcing the United States to provide air support and ultimately build a global coalition to combat ISIS.
The price of oil continues its downward slope with current prices still below $80 a barrel. To the average American the drop in gas prices is welcome news, especially heading into the holiday spending season, with extra disposable income. Some economists have likened the savings at the pump equivalent to a tax rebate which is likely to stimulate the economy. There are other factors to consider before we start going back to our gas guzzlers from decades past. Will OPEC cut production or will they continue to sell at current prices? Time will tell.
Domestically, the oil boom originated in the North Dakota Bakken Oil region through hydraulic fracking. This process allows for horizontal drilling by pumping pressurized liquid deep in shale rock formations allowing for gas and oil to flow freely. More rich petroleum and gas deposits are located in Texas and the eastern U.S. This is still a complicated issue since oil is traded on the commodities market and subject to market fluctuations not necessarily tied to supply and demand.
A Look Ahead For Factoring Companies and Asset Based Lenders in 2015
Using this information as a backdrop, will 2015 be a good year for the asset based lending community? Depends.
What we do know is that the U.S. economy is getting better. According to the United States Bureau of Labor Statistics, non-farm payroll employment grew 214,000 in October and the unemployment rate edged down to 5.8%. Although corporations are starting to expand we still see the need for cash flow providers to fuel growth. Banks and other institutional lenders are lending more to businesses but not enough. The after effects of the global recession are still being felt with very tight lending restrictions and strict requirements for business loans.
From our vantage point, a growing economy is good for invoice factoring companies and other niche lenders. The domestic oil boom in North Dakota has proven to be very prosperous for transportation factors providing capital to small, mid-sized and fleets of trucking companies that are hauling oil and gas for large, well capitalized corporations.
We believe that one of the biggest misconceptions with factoring is that our services are best suited for companies as a last resort to stay afloat. Our experience over the last several years is that expansion creates the cash flow demand from our clients. Many of our past and current clients have business loans that are not adequate to meet their demands.
Pop up lenders are now the rage on the internet catering to small businesses. I’m sure these providers have found a niche by using social media as a way to get their message out to the masses. We’re sure the surge will end with only the strongest surviving. Whenever there is a herd of folks chasing the same demographic in the business or consumer market, we advise our clients to proceed cautiously.
Generally, if something sounds too good to be true, it usually is. As I’ve stated in previous articles, we feel that our services are all about relationships. A good factoring company understands their client’s business model and most importantly the reason why they are utilizing the services of that factoring company. Contrary to popular belief, we advise many of our prospects to seek other forms of financing if we feel that invoice factoring isn’t the right fit. Some examples are the applicant’s margins are too thin to justify the cost since their sales are in a mature period. In other cases the client may need a bridge loan to offset some short term cash flow crunch or they simply may require purchase order financing to get parts and materials to fulfill orders. No matter what the situation is or where you direct your prospect, integrity is a cornerstone for every successful business.
Nobody knows for sure how 2015 will shake out for lenders, businesses and consumers. The indicators are pointing in the right direct at home, let’s hope the rest of the global community follows suit. At the end of the day be fair with your clients, be prudent in your due diligence and most importantly be profitable and successful in the New Year!
Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California. Don has over 25 years experience working in the commercial and residential finance industries. He previously served as Controller of a commercial insurance agency and as Chief Financial Officer of a publicly traded mortgage company. He can be reached at 949-305-9300 or don.dambrosio@oxygenfunding.com.